Major Internet Firms Create One-Stop Ad Shops

AP

Sunday, 7 Oct 2007 | 2:10 PM ETThe Associated Press

SHARES

The recent rush by major Internet portals to buy advertising companies and extend their sales networks is a sign that the business of being a one-stop shop for information and entertainment isn't what it used to be.

Gone are the days of emphasizing ways to attract and keep visitors -- the way television networks long have operated -- by creating destinations with anything people might need for work, leisure or companionship.

Instead, those companies are now more aggressively trying to follow Web surfers elsewhere -- and bring lucrative advertising to them.

As people increasingly turn to blogs, social-networking sites and other sources of user-generated media, Google, Yahoo, Microsoft and Time Warner's AOL have spent more than $10 billion collectively this year to acquire companies and technologies that help extend their online advertising networks.

So instead of relying solely on being portals for consumers, the major companies are creating one-stop shops for advertisers, who are increasingly wanting to buy ads centrally and place them where the eyeballs are. The networks take care of feeding the ads to smaller sites.

"We're not interested in building yesterday's portal," said Ron Grant, AOL's president and chief operating officer. "Consumers are finding what they are looking for is coming from more and more fragmented places. We need a way for advertisers to take advantage of that fragmentation."

Important Shift

That shift is important for the major Internet businesses to grab a substantial share of the marketing dollars expected to flow at the expense of television and print.

For consumers, the development means greater freedom and a further erosion of artificial walls designed to keep visitors from leaving sites.

According to comScore Media Metrix, the U.S. audience for the four major Internet brands grew over the past year. But the total time spent at Yahoo and AOL dropped about 10%, while Microsoft's MSN-Windows Live services saw an 8% decline.

In other words, these sites are attracting more people but are keeping them for shorter durations as users find what they need elsewhere.

Google was the exception, with a 57% jump in total time spent, but even the company recognizes that "no individual property will have all those products and services" a user might want, said Tim Armstrong, Google's head of North American ad sales.

"The Internet is basically being built and scaling (faster) than any one property on the Internet is," Armstrong said. "Companies in the Internet space are changing their business models to have models which are consumer driven, not property driven."

That's not to say the major Internet destinations are ceding their own properties.

In a few cases, the large companies have bought wildly popular sites. Google spent about $1.76 billion last November to absorb the leading video-sharing site, YouTube. It also owns the blogging service Blogger, while Yahoo has the photo-sharing site Flickr.

New Features

They are also innovating. AOL revamped its video search site in August, while Yahoo retooled its core search engine this month to try to make it more engaging and lure back those who had defected to Google.

"Everyone still wants to be your home page. They are always going to battle for that," said Nick Nyhan, chief executive of market research firm Dynamic Logic. "But they have to think beyond that. Consumers aren't going to just take your stuff."

Google, Yahoo and AOL still make most of their ad money from sites they own and operate (Microsoft did not break down figures in its regulatory filings). Google and Yahoo even reported relative growth there in the second quarter.

Ad networks set the stage for the future and help the large Internet companies ensure they will have enough inventory to sell in the years ahead.

Ford Motor can, for instance, come to Google and buy ads that run not only there but also at The New York Times' Web site and thousands of others within Google's AdSense network. Ford wouldn't have to deal with all those sites individually; third-party sites wouldn't have to expand their sales team.

In agreeing to acquire DoubleClick for $3.1 billion, Google is looking for better ways to deliver multimedia display ads to supplement the small, text-based ads the company already does well.

The still-pending acquisition also extends Google's reach beyond AdSense to all the outside sites for which DoubleClick now distributes advertising.

Likewise, in buying Tacoda, AOL not only gets Tacoda's technology for targeting ads, but also extends its reach to NBC Universal, Scripps Networks and the Times (sites can join multiple ad networks). AOL also has a network through its 2004 acquisition of Advertising.com and separately bought companies this year serving international markets and wireless devices.

Yahoo, meanwhile, paid about $650 million for the 80% of Right Media it did not already own and agreed to buy BlueLithium for $300 million. Microsoft bought aQuantive for $6 billion.

"It's not that networks are going to supplant these mass-market sites, but they will have less influence as networks have more," said David Hallerman, a senior analyst at the research group eMarketer, which projects U.S. online advertising spending at $44 billion in 2011, more than double the $17 billion last year.

The shift didn't happen overnight. Many factors are involved, including online hangouts like Facebook and News Corp.'s MySpace commanding more of a user's time over the past few years. Web sites big and small are making features available, through tools called widgets, for viewing directly at those sites.

Of course, the major brands would still prefer visitors going to them directly, as they wouldn't have to share ad revenues with another site.

But as audiences disperse, advertisers have become reluctant to concentrate their spending at a traditional portal.

Better Targeting

Besides standardization, efficiency and diversity, advertisers get better targeting with networks. Say you are trying to reach Seattle natives with a propensity to fly to the remote Arctic island of Svalbard. On a portal you might find 10. On a network 100 times larger, you'd find 1,000 without changing your campaign.

There are drawbacks, though.

U.S. and European regulators are reviewing Google's proposed acquisition of DoubleClick. Critics complain Google would have too much control over online advertising and personal information collected on users.

And despite the efficiencies, consolidation could hamper flexibility, said Jason Turner, vice president for interactive at advertising agency Ignited.

"When there were four television networks, you were beholden to those four, (who could say), `Here are the rules. This is what it's going to cost and if you don't like it you're not going to get on TV,"' Turner said.

Nonetheless, ad networks are here to stay.

"Advertisers are going to need to start to use the Internet the way people always use the Internet, spreading out in hot pursuit of the things they need and want," said Jarvis Coffin, chief executive of Burst Media, an independent ad network. "It's much easier to fish where the fish are."